This publication is kindly made possible by support from the Swedish Ministry for For-
eign Affairs. The opinions and conclusions expressed are those of the author/s and do not
necessarily reflect the views of the Institute for Security and Development Policy or its
sponsors.

In a country where there are constraints in formal practices, informal activi-
ties normally arise. Informal practices are not necessarily illegal and bad,
however some of them tend to occupy a grey area and/or are illegal in ac-
cordance with local regulations. There are costs and benefits in minimizing
these informal practices in a country. While constraints and restrictions still
exist in the formal economy, any attempt to crush informal practices may
realize more costs than benefits. Reduction of these constraints and restric-
tions in the formal economy may gradually erase informal practices in most
cases.
In Myanmar, informal practices in trade have been in existence for quite
some time. The main purpose is not necessarily tax evasion, although the
tax levied on exports (i.e. 10 per cent on the total export value) is considera-
bly high. There are a number of reasons for involvement in informal prac-
tices and these include, among others:

to avoid the lengthy licensing process
to import products without having earnings from exports
to import/export products that are restricted on a temporary or
permanent basis
to evade tax

Since economic sanctions were first imposed by the West in 1997, and
further stiffened in 2003 and 2007, cross-border trade has become more sig-
nificant due to the fact that direct imports from and direct exports to the
West have become much more difficult. As a result, Myanmar has relied
more on its neighboring countries of China, Thailand, and India, to where
most products are exported for consumption and also for re-export to the
West.
It is noted that the value of Myanmar’s exports to China, Thailand, and
India accounts for 66 per cent of its total value of exports in 2007–08. In-
6 Winston Set Aung

come generated from cross-border trade has also become one of the major
sources of income for Myanmar, while income from other economic sectors
such as foreign direct investment and tourism has diminished due to vari-
ous factors that include economic sanctions. Since cross-border trade has
become significant, trade through the border points with neighboring coun-
tries, especially China and Thailand, has become more active.
While natural gas, timber, and agricultural products are the major com-
modities for cross-border trade with China, Thailand, and India, the most
common commodities flowing both formally and informally through bor-
der points (especially with China and Thailand) are timber, gemstones, fi-
shery products, electronics, agro-industrial products, and clothing. Some
timber, gemstone, and fossil products are not authorized for export yet still
flow through various unofficial border channels. These products are also
exported through formal channels by sea or by air freight with licenses is-
sued by the Ministry of Commerce following approval by ministries such as
the Ministry of Forestry and the Ministry of Mines. Hence commodities fall
into both formal and informal categories of cross-border trade.
Although the value of border trade (according to official statistics) ac-
counts for only 7 per cent of Myanmar’s total trade value, the actual value
of border trade is likely to be much higher due to the value of undocu-
mented trade that flows through borders, which reached over US$1 billion
in 2006. If this undocumented trade were to be included in official statistics,
the value of border trade would have accounted for around 25 per cent of
Myanmar’s total value of trade in 2006.
Although cross-border trade plays an important role in Myanmar’s
economy, there are still various constraints such as an export-first policy,
licensing system, and high tax related to exports in conducting formal
trade. This has led to a situation where informal practices have expanded
drastically, especially in border areas. Brokers have become more systemat-
ic by incorporating trading companies and specializing in several sets of
products. Licenses for exports and imports are issued by the border trade
authorities under the Ministry of Commerce, whereas broker trading com-
panies apply for such licenses in advance for imports/exports of their spe-
cialized products. As a result, individuals or companies wanting to im-
The Role of Informal Cross-border Trade in Myanmar 7

port/export can do so by purchasing the license acquired in advance by
broker trading companies, or on their behalf at a fee (that includes a docu-
mentation fee) that varies depending on the market situation and seasonali-
ty. Through these practices, trade turnovers have increased, trade facilita-
tion has improved tremendously, and job opportunities have opened up for
more locals in border areas.
In addition to broker trading companies, there is another type of infor-
mal player that is normally called a “carrier.” These carriers are individuals
who carry undocumented products, both legal and illegal, across borders
and bypass all customs check-points within Myanmar until they reach their
destinations. Although this type of activity seems to be a petty trade, the
value and volume of such trade carried out by a considerable number of
carriers could be high. These carriers mostly work under or together with
broker trading companies.
These informal players are local people from around the border areas
(especially in the case of Kawthaung, which borders Ranong, Thailand) al-
though a majority of them have migrated internally from city areas such as
Yangon or Mandalay (especially in the case of Muse bordering Ruili, China,
and in the case of Myawaddy bordering Maesod, Thailand). In the case of
Muse, some operators of broker trading companies are related to those in
Jiegao across the border, whereas the relationship of a majority of operators
in Ranong (in the case of Kawthaung) is just that of a business partnership
without having a formal contractual relationship.
The increased flow of border trade both through formal and informal
channels tends to have a positive effect on people around the border points.
Interviews conducted in 2007 revealed that income levels amongst young
men (under 21) have increased in line with improved formal and informal
border trading operations. The chances of male respondents in the younger
age category possessing increased incomes due to improved formal and
informal border trade are high. Surveys and focus group discussions also
highlighted that people around the borders have a positive view of in-
creased border trade both through formal and informal channels and disag-
ree with constraints, restrictions, and trade related policies that can be
changed abruptly at any time.
8 Winston Set Aung

The facilitating role of informal players is quite important in border
areas, and any attempt to eliminate them could have an adverse effect on
cross-border trade and people living around the borders. Existing trade pol-
icies should be tilted to incorporate measures favorable to the poor, so that
border trade can not only contribute to economic development but also to
poverty alleviation, opening up more opportunities for the ethnic minori-
ties and disadvantaged in the border areas.
Introduction

There is very little documentation relating to Myanmar’s cross-border
trade1 because cross-border activities between Myanmar and its neighbors
(India, Bangladesh, China, Thailand, and Lao PDR) are mostly informal and
available secondary data does not reflect the actual situation. Although the
annual total volume of border trade ranged between 10 and 14 per cent of
the total foreign trade in 1994–95 and 2004–05 according to official statistics
issued by the Central Statistical Organization under the Ministry of Nation-
al Planning and Economic Development, anecdotal evidence and data from
neighboring countries suggest that the actual value could be much higher. 2
In Myanmar, licensing is required for export and import. Licenses are
issued by the Department of Trade under the Ministry of Commerce. How-
ever, historically, licenses were only issued for international shipments by
air or sea, while trade by road through borders was not approved until
1996. In other words, border trade was completely illegal in Myanmar until
that year, although smuggling of small consumer goods by various human
carriers (especially in and out of Thailand and China) took place in border
areas. Furthermore, it was not easy to perform border trade in big volumes
in the past due to a plethora of constraints including poor transportation,
insurgent groups in border areas before cease-fire agreements, etc.3 Border

1 Cross-border trade is trade with neighboring countries through shipments either
by sea or by air (or by pipelines in the case of natural gas). Border trade is trade
with neighboring countries through border points by road (or by coastal sea in the
case of exports from Myeik to Thailand).
2 Tin Maung Maung Than, “Myanmar’s Foreign Trade under Military Rule: Pat-

terns and Recent Trends,” in Daljit Singh and Lorraine Carlos Salazar, eds., South-
east Asian Affairs 2007 (Singapore: Institute of Southeast Asian Studies, 2007), pp.
242–54.
3 Myanmar was granted independence from the British in 1948, but the autonomy

promised to ethnic minorities by Britain was not realized and, as a result, these
ethnic groups began taking up arms in 1949 to demand greater autonomy. From
the early 1990s, Myanmar’s government had conducted cease-fire agreements
with several ethnic groups through its constructive engagement policy with trade
10 Winston Set Aung

trade was legalized in 1996 with the establishment of the Department of
Border Trade under the Ministry of Commerce, which resulted in signifi-
cantly increased volumes of trade.4 The role of cross-border trade became
even more important when U.S. economic sanctions were imposed in 1997
– they were stiffened in 2003 and 2007 – which served to have a negative
effect on trade flows to the West and on financial transactions for trade in
US$.
Although the Myanmar government has promoted formal/official cross-
border trade, informal cross-border trade activities have still been signifi-
cant due to a number of factors, in particular the complexities of the trade
licensing system. This system requires various documents, including sales
contracts, letters of credit, and bank transactions in a single currency pre-
scribed by the government. Although licenses for trade are issued within a
day in the border areas through one-stop service centers, it takes one to four
weeks to prepare the application documents, depending on the value and
type of commodity. Such a lengthy process in trade licensing and restric-
tions on imports and exports imposed from time to time, depending on the
market and economic situation in Myanmar, have led to increased informal
cross-border trade activities. Informal cross-border trade refers to registered
or unregistered business activities undertaken across the borders based
mainly on the popular economy.5 Popular economy is an economy where
products have a high demand in the importing countries and are traded
mostly by smaller traders/brokers/informal players aiming at gaining arbi-
trage profits.

interests. Cease-fire groups mainly include United Wa State Army (UWSA), Ka-
chin Independence Organization (KIO), New Mon State Party (NMSP), New
Democratic Army-Kachin (NDA-K).
4 Winston Set Aung, “Cross Border Economic Relations of Myanmar with China

tion in SADC and Implications for Wealth Creation,” http://www.streetnet. org.za
/english/corn.pdf (accessed December 2008)
The Role of Informal Cross-border Trade in Myanmar 11

Myanmar borders five countries and has thirteen border trade points of
which Myawaddy (bordering Thailand) and Muse (bordering China) have
been the most busy (Figure 1). Out of Myanmar’s five neighboring coun-
tries, only Thailand and China (Yunnan and Guangxi provinces) are in-
volved in the Greater Mekong Sub-region (GMS). Myanmar is also a mem-
ber.6

Figure 1. Myanmar’s Main Cross-border Points with China and Thailand

Border point between Muse
(Myanmar) and Ruili (China)

Border point between Tachi-
lake (Myanmar) and Maesai
(Thailand)
Border point between Mya-
waddy (Myanmar) and Maesod
(Thailand)

Border point between Kaw-
thaung (Myanmar) and Ranong
(Thailand)

In spite of being a member, Myanmar has not yet reaped any benefit
from the GMS economic cooperation program due to various limitations,
among them the economic sanctions imposed on the country. However,

6
Countries and regions in the GMS include Thailand, Yunnan and Guangxi prov-
inces of China, Vietnam, Cambodia, Lao PDR, and Myanmar. The economic coop-
eration program in the GMS was initiated by the Asian Development Bank in
1992. The program is designed to enhance economic relations among the countries
in the sub-region, which is composed of the aforementioned countries and regions
that the Mekong River passes through. The program has contributed to the devel-
opment of infrastructure promoting the development and sharing of the resource
base as well as the freer flow of goods and people in this sub-region (Asia Devel-
opment Bank).
12 Winston Set Aung

economic sanctions have increased cross-border trade with neighboring
countries (especially GMS countries) due to restrictions on trade with large
markets such as the United States and Europe. Although cross-border trade
has been one of the major outlets for Myanmar export commodities, strin-
gent trade related policies have made trade facilitation cumbersome and
hindered its development, making the role of informal players and informal
cross-border trade activities essential. Unless the stringent trade policies are
relaxed, any attempt to restrict these informal activities would have an ad-
verse impact on cross-border trade. However, informal activities tend to
produce undesirable outcomes such as increased corruption, smuggling,
and human trafficking through informal trade routes, deteriorating ethics,
etc. In the long term, this requires a formalization of these policies if these
policies are to contribute to economic development.
This paper aims at identifying the role that informal cross-border trade
activities plays in facilitating trade between Myanmar and Thailand and
Yunnan province of China, that is, the neighboring GMS members, and the
perceived impact of cross-border trade on the income level of members of
average households in the border areas. The paper also attempts to identify
commodities in which Myanmar has comparative advantage compared to
other GMS members, and to draw possible policy implications.
Hence, the paper attempts to answer the research questions on how in-
formal cross-border trade activities affect trade facilitation and how they
should be improved and formalized. Accordingly, this paper examines
Myanmar’s major trade items, the major destination markets for its prod-
ucts, the commodities in which it has a greater comparative advantage
compared to similar products of other GMS members, the nature of infor-
mal cross-border trade activities and their role in trade facilitation, their
impact on households in border areas, and, finally, recommends proposals
for policy measures that could be adopted to improve cross-border trade
facilitation.
Overview of Myanmar’s Trade Sector

Although Myanmar is an export-oriented country with exports totaling
over US$4 billion in 2006, its total export value has been low compared to
Thailand and Vietnam due to factors like economic sanctions, the licensing
system with its stringent requirements, and a lack of effective trade promo-
tion. The value of Myanmar’s total trade (both exports and imports) in 2006
accounted for only 10 per cent of Vietnam’s trade, 3 per cent of Thailand’s,
and 0.4 per cent of China’s; but it constituted 90 per cent of Cambodia’s
trade, and was three times greater than that of Lao PDR. 7 Although Myan-
mar’s export value has been lower than for other countries, its trade per-
formance has been positive during the past five years since the export of
natural gas to Thailand began (Figure 2).

In terms of exports, the value of Myanmar’s total exports in 2006 was
only 3 per cent of Thailand’s and 11 per cent of Vietnam’s, whereas it was
0.16 per cent higher than Cambodia’s and four times higher than Lao
PDR’s.8 The main destinations for Myanmar’s exports are Thailand (50 per

cent), India (17 per cent), China and Japan (5 per cent each). Meanwhile,
Myanmar imports mostly from China (34 per cent), Thailand (22 per cent),
Singapore (16 per cent), Malaysia (5 per cent), and India (4 per cent).
Top export products of Myanmar in 2006 included natural gas (account-
ing for 43 per cent of its total value of exports), wood products (16 per cent),
vegetables and certain roots and tubers (13 per cent), apparel and garment
products (7 per cent), and fish and aquaculture products (6 per cent) (see
Table 1, and Figures 3, 4). Natural gas is exported mainly to Thailand, wood
products to India, China, Thailand, and Vietnam, vegetables to India, Pakis-
tan, Malaysia, Indonesia, and the United Arab Emirates, apparel and gar-
ment products to Germany, Japan, Spain, UK, and Korea, and fish and aq-
uaculture products to Japan, Thailand, Malaysia, Singapore, and the United
Arab Emirates, respectively.9 In 2005–06, according to the Central Statistical
Organization of Myanmar (CSOM), the share of export value of natural gas
was the largest, followed by teak and hardwood (13 per cent), agricultural
products (12 per cent), garment products (8 per cent), silver, precious stones
and pearls (7 per cent), and fish and prawns (6 per cent).

Y
ear
Source: ITC
The Role of Informal Cross-border Trade in Myanmar 17

Figure 6: Total value of Myanmar’s imports

Thousands
USD in

Y
ear
Source: ITC and CSOM

Myanmar has had a positive trade balance since it started exporting nat-
ural gas to Thailand in 1999. According to CSOM, the trade balance reached
over US$2 billion in 2006–07. The average share of foreign trade in the
Gross Domestic Product (GDP) from 2001–02 to 2005–06 was 23.4 per cent.
Foreign trade has been a major foreign currency earner since 1997 because
of two factors: the Asian financial crisis (when foreign direct investment
was marginalized) and the first economic sanctions being imposed by the
U.S.
Myanmar’s trade sector is governed mainly by the “Myanmar Ex-
port/Import Rules and Regulations for Private Business Enterprises” as well
as ministerial orders and directives that are enforced by the Ministry of
Commerce and the Trade Council, the highest policymaking bodies for
trade issues.
On the international front, Myanmar was a founding member of the
General Agreement on Tariffs and Trade (GATT) and became a member of
the World Trade Organization (WTO) in 1995. It has also been a member of
the Association of Southeast Asian Nations (ASEAN) since July 1997. Thus
it subscribes to the ASEAN Free Trade Area (AFTA) and its Common Effec-
tive Preferential Trade (CEPT) scheme, which committed Myanmar to re-
ducing tariffs on products in the Inclusion List to no more than 5 per cent in
2008.
Myanmar signed a border trade agreement with Thailand on March 17,
1996, covering border trade between the two countries through the border
18 Winston Set Aung

trade posts of Maesai, Maesod, and Ranong on the Thai side and Tachileik,
Myawaddy, Kawthaung, and Myeik on the Myanmar side. Similarly,
Myanmar signed a border trade agreement with India on January 21, 1994,
with Bangladesh on May 28, 1994, with China on August 13, 1994, and with
Lao PDR on December 6, 2000. With a view to simplifying financial transac-
tions relating to border trade between Myanmar and Thailand, a Memo-
randum of Understanding (MOU) was signed in August 2006 between each
of Myanmar’s banks (the Myanmar Economic Bank and the Myanmar In-
vestment and Commercial Bank) and each of Thailand’s six banks (the Bank
of Ayudhya, the Bangkok Bank, the Krung Thai Bank, the Siam City Bank,
the Thai Farmers Bank, and the Thai Military Bank).
Myanmar’s Comparative Advantage

The comparative advantage of a country for a commodity changes as factor
endowments, technology, factor prices, and levels of income change. Ac-
cordingly, it is necessary to pay attention to changes in comparative advan-
tages of countries in various commodities. As is well-known from trade
theory, the Heckscher-Ohlin theory suggests that a country’s comparative
advantage is determined by its relative factor scarcity, i.e. its factor en-
dowment ratios relative to the rest of the world or a set of countries. How-
ever, it is very difficult to test the Hecksher-Ohlin theory to measure the
comparative advantage of Myanmar.10 Hence, the economist Bela Balassa
has proposed that it might not be necessary to include all factors affecting a
country’s comparative advantage.11 Instead, he suggested that the compara-
tive advantage is “revealed” by observed trade patterns, and in line with
the theory, one needs pre-trade relative prices which are not observable.
Thus, inferring comparative advantage from observed data is called “re-
vealed” comparative advantage (RCA), which has become a commonly ac-
cepted method for analyzing trade data with the “Balassa Index” which
measures a country’s comparative advantage.12
The Balassa index or RCA index is used to clarify whether a country has
a “revealed” comparative advantage rather than to determine the underly-
ing sources of comparative advantage.

where X represents exports, i is a country, j is a commodity (or industry), t
is a set of commodities (or industries), and n is a set of countries. The index
measures a country’s exports of a commodity (or industry) relative to its
total exports and to the corresponding exports of a set of countries or of the
world. A comparative advantage is “revealed,” if the index is greater than
1, whereas the country is said to have a comparative disadvantage in the
commodity (or industry) if the index is less than unity.
In this section, commodities in which Myanmar has a comparative ad-
vantage are identified and compared to the comparative advantages of oth-
er GMS countries. Although it is easy to determine the top export items, the
country in focus does not necessarily have a comparative advantage in
them. This section explores whether Myanmar has a comparative advan-
tage in its top two export items.
Myanmar’s top five export items are natural gas, timber/wood products,
vegetables, non-knitted garment products, and fishery products, of which
natural gas is exported mainly to Thailand, and the top export markets for
Myanmar’s timber/wood products are China and Thailand (Figure 7). The
total value of exports of the top two items (natural gas and timber/wood
products) accounts for nearly 60 per cent of Myanmar’s total value of ex-
ports, and the major markets are the neighboring GMS countries (i.e. China
and Thailand).

Figure 7. Dynamic RCA Indices of Main Natural Resources in Myanmar

30
25 RCA-Natural Gass
20 RCA-Precious Minerals
15 RCA-Copper

10 RCA-Wood

5 RCA-Metals&Ores

0 RCA-Fishery

-51995 2000 2005 2010

Source: Calculations based on data from UN Comtrade
The Role of Informal Cross-border Trade in Myanmar 21

It is evident that Myanmar has a strong comparative advantage in ex-
ports of both natural gas and timber/wood. In 2006, RCA indices of these
products were found to be much greater than 1 whereas those of precious
minerals and metals/ores were less than this. Hence, Myanmar’s compara-
tive advantages in natural gas and timber/wood are strongly “revealed”
whereas it has a comparative disadvantage in precious minerals and met-
als/ores. This fact could be attributed to increased smuggling of precious
minerals to China and Thailand, which has resulted in the export data for
these products being highly undervalued.
Myanmar ranked 72 in the world in terms of the value of natural gas ex-
ports in 2006. Its share of world exports amounted to 0.12 per cent. For tim-
ber/wood exports, it ranked 31 with a share of 0.65 per cent.13
Since Myanmar has a high RCA in exports of natural gas and tim-
ber/wood products, a comparison of the RCA indices of these products
with those of other GMS countries shows the position of Myanmar’s com-
parative advantage for these products among other GMS countries (Figure
8).

Myanmar has been the only major exporter of natural gas in the GMS.
Thus, it is not necessary to compare the comparative advantage with other
GMS members. The dynamic revealed comparative advantages in tim-
ber/wood products of GMS countries are given in Figure 8.

13 International Trade Committee.
22 Winston Set Aung

In the analysis, data on India is included although it is not a member of
the GMS, it is involved in the Bangladesh, India, Myanmar, Sri Lanka,
Thailand Economic Cooperation (BIMSTEC) in which Myanmar is also in-
volved. The reason for taking India into account is that exporters of agricul-
tural and timber products rely heavily on the Indian market. It is evident
that Myanmar’s comparative advantage in timber/wood products is at a
similar level to Lao PDR’s, whereas it is higher than for other GMS coun-
tries and India. If data for illegal logging and smuggling was added,
Myanmar’s comparative advantage would have turned out even higher.
Since Myanmar has a strong comparative advantage in timber/wood
products while other GMS countries (except Lao PDR) and India have a
comparative disadvantage, the prospects for intra-regional trade is bright
for Myanmar’s timber/wood products. Although one of the major markets
for Myanmar’s timber/wood products is Europe, a majority of these prod-
ucts end up in China, Thailand, and India through intra-regional trade due
to Myanmar’s lack of market diversification and product development.
The trend for Myanmar’s comparative advantage in timber/wood prod-
ucts is declining, however, due to the country’s export restrictions and the
increased share of natural gas exports in its total exports. It can be esti-
mated that the comparative advantage in these products will decline fur-
ther in 2008–09 due to the decline of import demand and consumption in its
major export markets such as India, China, and Thailand as a result of the
indirect impact of the global economic crisis. Due to the lack of product di-
versification (as a result of concentration in exports of a few products, with
natural gas exports accounting for a nearly 50 per cent share of total ex-
ports) and to the lack of market diversification (as a result of export concen-
tration in a few markets such as China, India, and Thailand), Myanmar’s
trade sector is vulnerable to external shocks such as the Asian financial cri-
sis 1997–98 and the on-going global economic crisis. Although Myanmar is
not directly impacted by the global financial crisis due to its lack of devel-
oped financial markets, the indirect impact of the crisis began to hit its trade
sector in November 2008, when most intra-regional as well as international
trade orders began to be cancelled due to importers’ lack of trade credits.
This left Myanmar exporters stuck with piles of un-exportable commodi-
The Role of Informal Cross-border Trade in Myanmar 23

ties, leading to a drastic decline in prices. Many exporters as well as pro-
ducers in Myanmar have recorded huge losses and some of them have bro-
ken forward commitments.
Myanmar’s Cross-border Trade

The lion’s share of Myanmar’s documented cross-border trade is with Chi-
na and Thailand, accounting for 47 and 51 per cent, respectively. The larg-
est border trade transactions in terms of documented trade14 (in US dollars)
are at Muse (bordering China) and Myawaddy and Kawthaung (bordering
Thailand). The value of trade between Muse (on the Myanmar side) and
Yunnan province of China accounts for 39 per cent of Myanmar’s total do-
cumented cross-border trade, whereas the value of trade between Mya-
waddy (on the Myanmar side) and Mesod, Thailand, and Kawthaung (on
the Myanmar side) and Ranong, Thailand, accounts for 24 and 15 per cent.15
In terms of cross-border exports, Muse, Myawaddy, and Kawthaung
also play significant roles. Myanmar’s documented cross-border exports
through Muse, Myawaddy, and Kawthaung account for 41, 19, and 12 per
cent, respectively, of the total value of documented cross-border exports
from Myanmar.16 Major exports include agricultural products, fishery
products, and timber/wood products (Figure 9).

Figure 9. Documented Cross-border Exports of Myanmar

Source: Department of Border Trade, Ministry of Commerce, Myanmar

14
Value of documented trade is the combination of value of documented exports
and imports.
15 Calculations are based on the data of the Department of Border Trade, Ministry

of Commerce, Myanmar.
16 Tin Maung Maung Than, “Myanmar’s Foreign Trade under Military Rule.”
The Role of Informal Cross-border Trade in Myanmar 25

In terms of cross-border imports, the same border points are important.
Myanmar’s documented cross-border imports through Muse, Myawaddy,
and Kawthaung account for 38, 31, and 19 per cent, respectively, of total
documented cross-border imports.17 Major import products include machi-
nery, electric and electronic products, and other industrial and agro-
industrial products (Figure 10).

Figure 10. Documented Cross-border Imports of Myanmar

Source: Department of Border Trade, Ministry of Commerce, Myanmar

Myanmar’s documented cross-border exports accounted for 10 per cent
out of the total value of documented exports between 2003 and 2005 and 7
per cent in 2005–06, while Myanmar’s total documented cross-border im-
ports accounted for 9 per cent in 2003–04, 10 per cent in 2004–05, and 11 per
cent in 2005–06. Since the value of documented cross-border exports and
imports account for around 10 per cent of total trade, cross-border trade is
important for Myanmar trade. Increases in cross-border trade are attributed
to Myanmar’s bilateral cooperation with neighboring countries following
the 1996 border trade agreement with Thailand, which led to a 186 per cent
rise in Myanmar’s cross-border exports in 1996–2007.18
Myawaddy has been the most important area for cross-border trade
with Thailand, accounting for 60 per cent of total cross-border exports to
Thailand in 2006–07. The second major cross-border trade area is Muse,

Ibid.
17

Calculations are based on data of the Central Statistical Organization of Myan-
18

which accounted for 83 per cent of documented cross-border exports to
China in the same period.19
According to official statistics, Myanmar had a positive cross-border
trade balance both with China and Thailand between 2002 and 2007 (except
in 2005/06 with China). Myanmar’s cross-border trade balance with Thail-
and is much greater, since exports of fishery products by sea from Myeik
are included (Table 3).20

Apart from documented cross-border trade, the volume of undocu-
mented cross-border trade has been significant since informal activities and
trade are rampant in border areas. Cross-border trade in Myanmar can be
divided into four categories: legal/documented trade, legal/undocumented
trade, illegal-but-licit/undocumented trade, and illegal-and-illicit/ undocu-
mented trade. Legal/ documented trade includes the trade of any commodi-
ty that is exported or imported with an official license issued by the border
trade authority, whereas legal/undocumented trade includes exports and
imports of legal commodities without official import or export licenses. Le-
gal/undocumented trade is undertaken by many traders and brokers with
the purpose of evading tax and/or avoiding lengthy licensing procedures
and is undocumented on the Myanmar side. Illegal-but-licit/undocumented

19
Tin Maung Maung Than, “Myanmar’s Foreign Trade under Military Rule.”
20
Myeik is not a border area but it is rather close to Kawthaung bordering Ranong
of Thailand. It is in the southern part of Myanmar’s coastal region and it lies adja-
cent to the Andaman Sea. Mostly fishery products are shipped from the port of
Myeik to Thailand.
The Role of Informal Cross-border Trade in Myanmar 27

trade includes exports and imports of commodities that are prohibited by
either the trade authorities of Myanmar or the partner country, such as im-
ports of vehicles and parts, monosodium glutamate, etc. (prohibited on the
Myanmar side). Thus, they are undocumented on the Myanmar side but
may be documented by the partner country. Illegal-and-illicit/undoc-
umented trade includes the trade of illegal drugs and drug related products
such as amphetamine and is undocumented either in Myanmar or the part-
ner country.
Out of four categories of trade, trade data for the legal/documented
trade is available on the Myanmar side but not for legal/documented, le-
gal/undocumented, and illegal-but-licit/undocumented trade. However,
data on these three categories may be available in the partner countries. For
instance, in the case of cross-border trade between Myanmar and Thailand,
especially at Myawaddy-Maesod, there is one legal check-point on the
Myanmar side, whereas there are around 18 check-points that are illegal on
the Myanmar side but legal on the Thai side. Although this trade is undo-
cumented on the Myanmar side, it can be documented on the Thai side. As
a result, trade data for the three categories can be acquired from the Thai
side. However, trade data for illegal-and-illicit/undocumented trade is not
available on either side, since the trade of these commodities takes place
entirely on the black market.
Undocumented trade (category 2 and 3) reached over US$1 billion in
2006 and figures would have been even higher if data on illegal-and-
illicit/undocumented trade had been included (Figure 11). Illegal exports of
logs/timber are classified as category 2 and 3 because exports of logs are
permitted only through official bidding, and exports outside the official
bidding process are illegal on the Myanmar side. Likewise, exports of pre-
cious minerals are also classified as category 2 and 3 because exports with-
out the approval of the Ministry of Mines are illegal on the Myanmar side.
28 Winston Set Aung

A brief qualitativeM analysis of factors behind the undocumented trade
based on interviews with local authorities and focus group surveys with 27
local traders was conducted in 2007. The analysis revealed that the rise of
undocumented trade is attributed primarily to the export first policy, im-
port restrictions, and the import and export licensing system. These policies
are very good for protecting the domestic market but they may sometimes
trigger undesirable outcomes that result in undocumented trade.
The export first policy is practiced by the Myanmar trade authorities with a
view to earning more export income and for maintaining a favorable trade
balance. As a result, traders are required to export first in order to earn ex-
port earnings which can be used to pay for imports. In reality, every expor-
ter cannot be an importer and every importer cannot be an exporter. Hence
there is a growing need for agents/brokers to meet this requirement. As a
result, small- and medium-sized traders are encouraged to involve them-
selves in undocumented trade to avoid this complication.
Imports of several goods are restricted by the Myanmar trade authorities
depending on the domestic market situation. Furthermore, only 20 per cent
of a company’s export earnings can be used to pay for imports, whatever
goods it wants to import, whereas 80 per cent of export earnings can only
be used for the imports of priority items such as industrial, agro-industrial
goods, etc. As a result, import restrictions tend to encourage small- and
medium-sized traders to carry out undocumented trade transactions.
A one-stop service center has been successfully established on the
Myanmar side in order to speed up and smooth the way for cross-border
The Role of Informal Cross-border Trade in Myanmar 29

trade activities. However, an export and import licensing system still exists.
An import or export license can be acquired within a day through the one-
stop center but it takes between one and four weeks to complete application
papers and banking requirements. Some small- and medium-sized traders
find the licensing procedure too complicated. As a result, they tend to get
involved in informal trade transactions.
The Role of Informal Cross-border Trade Activities

Due to the licensing system and trade policies that tend to be restrictive,
informal cross-border trade activities arise. Many trade agents/brokers are
registered as trading companies and depending on specialization, they ap-
ply for trade licenses in advance. Any trader wanting to import a commodi-
ty can do so through a broker trade company specialized in this product.
Broker trade companies are responsible for making the necessary adjust-
ments to meet the specific requirements of trade authorities so that actual
traders can avoid restrictions and requirements by going through them. The
information that traders need to know from them is just “yes,” or “no”
(whether or not they can accept), “how much” (how much it costs), and
“how long” (how long it takes to reach the destination).
The role of these broker trade companies is very important for trade faci-
litation and for turning undocumented trade into documented trade. Bro-
ker trade companies are brokers/trade facilitators who are registered as ex-
porters/importers. They import and export products in their name, not for
themselves but for other people (who are not registered expor-
ters/importers), and/or for companies which do not want to go through the
lengthy licensing process. Most of them belong to ethnic groups, especially
in the case of Kawthaung (bordering Ranong, Thailand), whereas in the
case of Muse (bordering Ruili, China) and Myawaddy (bordering Maesod,
Thailand) a majority of them have migrated from city areas such as Yangon
and Mandalay. Most of them live on the Myanmar side and some of them
have their own warehouses in neighboring countries and are connected to
informal agents/traders in major cities of these countries. They normally
charge for delivery according to size or weight of cargo. Cargos for imports
are collected by informal agents/traders stationed in major cities of neigh-
boring countries, are transported to borders, and then transferred to broker
trading companies. This means that two forms of costs are incurred by the
traders – packaging and transport cost for informal agents/traders on the
side of a neighboring country, and license processing and delivery cost for a
The Role of Informal Cross-border Trade in Myanmar 31

broker trading company on the Myanmar side. By going through informal
agents/traders and local broker trading companies, trade facilitation is im-
proved and, as a result, traders find it more convenient to deal with them.
There are two types of informal players in border areas. One is the bro-
ker trading companies taking responsibility for documented trade, and
another is smugglers (often called carriers) responsible for undocumented
trade. The route used by the former is called the “upper channel” and the
route used by the latter is called the “lower channel.” Products restricted in
the upper channel simply go through the lower channel. Products that are
expensive to get through the upper channel also go through the lower
channel. The lower channel is sometimes risky and the chance of losing
some products is high. Carriers carry undocumented trade through unoffi-
cial routes in order to bypass check-points in Myanmar.
Traders wanting to import a product can start with individual agents
(responsible for sourcing), who are normally Myanmar citizens staying in
neighboring countries or in border areas and who are often called “pur-
chasers.” These agents or purchasers can source appropriate products at
reasonable prices in their respective countries at the commission rate of
around 2–3 per cent. These products are then imported into Myanmar
through agents/brokers responsible for their respective parts/sections. The
cost of a delivery (imports) of any item (e.g. a garment) with an approx-
imate size of 20 cubic feet from Bangkok to Yangon is around Kyat 70,000
(around US$64). At this price, it costs around Kyat 200 (around US$0.18)
per piece. By early 2008, the cost of imports of some items (that included
garments and footwear) through the upper channel tended to be even
cheaper than those going through the lower channel due to improved trade
facilitation provided by broker trading companies, thus pushing away the
lower channel.
The way broker trading companies import or export various commodi-
ties through the upper channel (allowing traders to avoid the lengthy li-
censing process) is an informal cross-border trade activity. They are neither
real exporters nor importers and just facilitate trade for actual exporters and
importers. As long as a licensing system still exists and some restrictions on
trade are in place, the role of these broker trading companies becomes more
32 Winston Set Aung

important in promoting upper channel trade (through which documented
trade flows) which tends to marginalize, to some extent, the lower channel
for undocumented trade.
If the role of these companies is not recognized and these informal cross-
border trade activities are restricted at the same time as trade licensing sys-
tem and trade restrictions are in place, the volume of undocumented trade
would soar and small- and medium-sized real traders would face many dif-
ficulties resulting in decreased volume and value of trade. While long-term
measures to promote cross-border trade should include the elimination of
the trade licensing system as well as trade restrictions, tariffs, and other
non-tariff barriers, the role of those broker trading companies in creating
the short-term benefits of increased documented trade should be recog-
nized.
Impacts of Cross-border Trade on Households in a
Border Area

Surveys among 182 households around Myawaddy (bordering Thailand)
and Muse (bordering China) were conducted in 2007 as part of a project in
cooperation with the Institute of Southeast Asian Studies of the Chulalong-
korn University of Thailand. The purpose of the survey was to identify per-
ceived economic and social impacts of cross-border trade activities on nor-
mal households in the border areas. During the survey, questions were
asked to household heads or responsible persons of various households,
who were categorized based on age level, income level, and current occupa-
tion. Age level is categorized into “younger” (up to the age of 20), “middle
aged” (21 to 50), and “older” (above 50); and level of income is also catego-
rized into “no income,” “low income” (earning less than Kyat 100,000 per
month), “middle income” (earning between Kyat 100,001 and Kyat 300,000),
and “high income” (earning above Kyat 300,000). Current occupation is also
categorized into four categories: employee, student, merchant, and others
(Tables 4, 5, 6).

A majority of respondents (68.7 per cent) were middle-aged. A majority
(67.6 percent) had a low income, and most of them worked in private busi-
nesses. Through the questionnaires and interviews, respondents were
asked to rate the following impacts of cross-border trade on their daily
lives:

on level of income
on businesses
on living standards
on road infrastructure
on standard of transportation

A majority of respondents (87.9 per cent) believed that cross-border
trade development and increased documented trade as well as undocu-
mented trade had improved their households’ business activities and in-
The Role of Informal Cross-border Trade in Myanmar 35

come levels, resulting in a situation where most respondents (95.1 per cent)
perceived that such developments had improved their standard of living.
Furthermore, a majority of them thought that transportation standards had
been improved due to the development of cross-border trade with the
neighboring countries (both legal and illegal) and that road infrastructure
had been much improved (although it is still in poor condition).

Through multivariate multinomial logistic regression, it can be esti-
mated that the cross-border trade activities have had a more positive effect
on income levels amongst men than those of women. In terms of age, the
chances of younger respondents having a higher income level are over four
times higher than that of older respondents. The chances of middle-aged
respondents having a higher income are 1.7 times higher. For the average
effect on income, the chances of younger respondents are also higher than
that of older ones (Table 7). As a result, cross-border trade is seen to have a
better effect on the income of most “male” respondents in the “younger”
category. However, levels of statistical significance are very low.
36 Winston Set Aung

The qualitative interviews revealed that, on average, most households
regard the effect of cross-border trade as positive. However, on average,
households involved in small noodle shops, video rental shops, and other
micro home businesses regard the effect of cross-border trade as negative
because of increased prices.
Conclusion and Policy Implications

Myanmar has had a positive trade balance in recent years due to the huge
value of its natural gas exports to Thailand, which account for nearly 50 per
cent of total export value. The top export items in which Myanmar enjoys a
strong comparative advantage are natural gas and timber/wood products,
accounting for nearly 60 per cent of its total exports. Top import items,
meanwhile, are machinery, refined mineral fuels, iron/steel, electric-
al/electronic products, and plastic products, which in all account for nearly
40 per cent of total imports.
As previously mentioned, the key market for natural gas is Thailand,
whereas the major markets for timber/wood products are China, India, and
Thailand. While there is no similarity regarding the level of its comparative
advantage in natural gas among the GMS countries, Myanmar’s compara-
tive advantage in timber/wood products is similar to that of Lao PDR in the
sub-region. However, comparative advantages in the timber/wood prod-
ucts of Myanmar and also that of Lao PDR have decreased and are expected
to further decline due to reduced international demand – an effect of the
global financial crisis which broke out in September 2008.
Myanmar’s exports are, thus, overwhelmingly concentrated in a single
product, natural gas, which is exported to one country, Thailand, although
Myanmar is planning for export to China and India. And in possessing a
comparative advantage in only a few other export products such as tim-
ber/wood, fisheries, and copper, it does not seem to have product or market
diversification. Under such circumstances, its export sector is vulnerable to
external shocks, like the Asian financial crisis of 1997–98 and the ongoing
global economic crisis. Appropriate measures should be taken to enter into
more bilateral or multilateral trade agreements, to strengthen trade promo-
tion, to facilitate trade, to eliminate complicated and lengthy legal proce-
dures, and to make trade policies and procedures stable, transparent, con-
venient, and affordable for small- and medium-sized traders, as well as to
make trade credits available. In addition, a favorable investment/business
38 Winston Set Aung

environment should be created to attract foreign direct investments in the
manufacturing and processing sectors whose products have high added
value. If Myanmar could increase exports of such products instead of ex-
porting its unprocecessed natural resources, the value of its exports would
be much higher and contribute more to the country’s economic develop-
ment and, at the same time, provide employment opportunities and a better
livelihood to local people and would contribute to human resources devel-
opment through technology transfers.
Regarding cross-border trade, Myawaddy and Muse are Myanmar’s bu-
siest cross-border trade points. Documented exports going through the
Muse border point account for 21 per cent of total cross-border exports, and
those going through Myawaddy account for 19 per cent. Documented im-
ports going through these border points account for 38 and 31 per cent, re-
spectively.
Regarding undocumented trade, the value of undocumented imports
from China accounts for approximately 41 per cent of Myanmar’s total im-
ports from China, whereas the value of undocumented imports from Thail-
and accounts for about 60 per cent. Factors behind these undocumented
trades include the existence of an export first policy, trade restrictions, and
the trade licensing system.
Documented trade flows through the upper channel whereas undocu-
mented trade flows through the lower channel. The way through which
broker trading companies that are neither real exporters nor importers are
involved in cross-border trade, providing informal trade facilitation by al-
lowing real traders to avoid lengthy trade licensing process, refers to in-
formal cross-border trade activities. Informal cross-border trade activities
have been rampant in border areas and have been important in marginaliz-
ing the lower channel.
In the short term, under the existing licensing system and the prevailing
stringent requirements, the role of broker trading companies and their in-
formal cross-border trade activities should be recognized. However, in the
longer term, the trade licensing system for some specific commodities
should be relaxed and/or replaced by a trade reporting system. Non-tariff
barriers should be reduced. The process of bank transactions and transfers
The Role of Informal Cross-border Trade in Myanmar 39

using a letter of credit should be improved. Through “more relaxed” or
“less stringent” requirements and increased trade facilitation, real exporters
and importers will be able to handle their exports and imports without hav-
ing to go through broker trading companies. Through capacity building,
training programs, and trade promotion, broker trading companies will ex-
pand their cross-border and international networks through which they can
handle their own trading businesses. Then, informal cross-border activities
will be formalized, and the “lower channel” will be replaced by more “up-
per channel” trade activity, resulting in increased documented cross-border
trade.
At present, despite the existence of stringent requirements and the li-
censing system, cross-border trade has flourished due to the importance of
informal cross-border trade activities for creating jobs in border areas. As a
result, in the surveys, most respondents of average households thought that
the development of cross-border trade had impacted positively on their in-
come. Since priority is normally given to ensuring the contribution of the
trade sector to economic development, its contribution to poverty reduction
and sustainability has not yet been secured.
In order for cross-border trade development to benefit people in border
areas and contribute to poverty alleviation, policy should be revised to in-
clude a pro-poor approach through which more disadvantaged people will
benefit. Through this approach, cross-border trade development will con-
tribute not only towards the economic development of Myanmar but also
towards poverty alleviation, at least around the areas close to the borders.
About the Author

Winston Set Aung is a Founder and Director of Research of the Asia Devel-
opment Research Institute (ADRI) (www.asiadevelopment.org) and also a
Founder and Executive Director of the Asia Language and Business Acad-
emy (ALBA) (www.alba-edu.com) in Myanmar. He also serves as a Faculty
Member of the Executive MBA Programme of the Yangon Institute of Eco-
nomics. He has been involved in more than 40 international research
projects in various countries in the Greater Mekong Sub-region in coopera-
tion with several international organizations such as the Institute of Asian
Studies of Chulalongkorn University of Thailand, Mekong Institute of
Thailand, Stockholm Environment Institute, University of Tokyo, Research
Institute on Contemporary Southeast Asia of France, Nomura Research In-
stitute of Japan, UNDP, JICA, among others.
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